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Investment heads west

27th July 2006, Page 20
27th July 2006
Page 20
Page 20, 27th July 2006 — Investment heads west
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Growing Indian truck manufacturer Ashok Leyland has snapped up Czech firm Avia, a move away from its traditional heartland. But what will this mean for the rest of the market? Oliver Dixon reports.

The immediate response to news that Ashok Leyland, India's second largest CV manufacturer, has bought Czech manufacturer Avia is: it begins.

After a long period of investment heading from traditional manufacturing regions into emerging markets, the roles are suddenly reversed. Although Avia is only a small player with a built-up capacity of 20,000 units a year, and a range recently extended to 12 tonnes from its core business in the six-to-nine-tonne sector it is still an interesting move.

Avia's recent history has been a cycle of takeover and sell-off from Daewoo to Odien Capital Partners LP but it has also been substantially restructured and its debts cut by its new owners.

Major markets

What is Ashok Leyland actually getting? The obvious answer is infrastructure: Avia has a presence in three major EU markets the UK, Spain and Italy as well as its home market of the Czech Republic, and is represented in a number of others (the majority in Eastern Europe).

Infrastructure has value, but only if a product exists to take advantage of it. It is unlikely that the UK's 21 Avia dealers will be putting Ashok Leylands on their forecourts in the immediate future, but the Indian manufacturer has deep pockets and extra investment could result.

Which could get in teresting.The retail truck sector is a phenomenon born over the past decade.with the likes of Isuzu and Mitsubishi FitsĀ° eschewing traditional transport buyers and targeting those for whom transport is a non-core but important business function. He re lies good revenue, and bumping up Avia's efforts in a non-brandaware market sector would make a lot of sense.

Such a move could give Ashok Leyland a boost in terms of scale. It produces 65,000 units a year putting it ahead of MAN, Iveco and Scania in global terms but is still small relative to the likes of DairnlerChrysler, Volvo and the Chinese leviathans Dong Feng and FAW.

Where does Avia sit in this? The Czech Republic isn't a bad address to have if you want to do business in today's global automotive business. To the west lie R&Ddependent manufacturers, most of whom have a freeze on new hires, but all of whom have ongoing R&D needs. To the cast is new Europe and, importantly, Russia, a market with huge growth potential.

EU cornerstone

Buying Avia has given Ashok Leyland a long-term option on the EU market; it has a cornerstone, and it may or may not seek to develop further. It gives ready access to Russia, the Middle East and Turkey, all key markets and likely to become increasingly competitive.

Buying Avia has also allowed Ashok Leyland to give one or two EU manufacturers a high-end headache. Iveco has a 15% stake in Ashok Leyland, but also has a new best friend in Tata. Although Iveco wants rid of Ashok, it must now be wondering quite what will come of the Avia deal.There is also the issue of who it sells its stake to Iveco survives on light and medium-duty business, and could probably do without another competitor in this sector.

All told, this is an intriguing development We don't think Avia is ever likely to be on anything other than the periphery of the EU truck business, but with a heavy hitter such as Ashok Leyland behind it, the future could get interesting. Moreover, this is a first a manufacturer from an emerging market buying an OEM from the truck manufacturing heartland. There must be other firms in Western Europe wondering who's next.

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Organisations: European Union

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